A retirement account funded with money you’ve already paid tax on, so withdrawals in retirement are tax-free.
A Roth IRA is an individual retirement account funded with money that's already been taxed, the opposite order from a traditional 401(k), which means it doesn't lower your taxable income the year you contribute, but withdrawals in retirement, including all the growth the account earned over the years, come out completely tax-free. It tends to make the most sense for people who expect to be in a similar or higher tax bracket in retirement than they are now, since paying tax at today's rate can end up cheaper than paying it decades later.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.